Improper Use of Discharge Status Codes Identified by IRF Audits

The lack of the correct patient discharge status code has been cited by Recovery Audit Contractors (RACs) as a problem in the claims of inpatient rehabilitation facilities (IRFs). The problem is actually twofold; improper use has resulted in overpayments in some cases and underpayments in others.

Correcting this problem is simple, says the Centers for Medicare & Medicaid Services (CMS) in the April issue of the Medicare Quarterly Provider Compliance Newsletter. Specifically, IRFs must determine the right discharge status code and enter it on claims. A basic understanding of the Medicare policy on transfers, which is described below, also will be an advantage.

Basic Billing Rules

The two-digit discharge status code identifies where the patient is transferred or discharged to at the conclusion of a healthcare facility encounter or at the end time of a billing cycle (the "through" date on the claim). Transfer cases are defined as those in which a Medicare beneficiary is transferred to another facility including the following. Note the discharge status codes following the location.

Another rehabilitation facility (patient status code 62);

Long-term care hospital (patient status code 63);

Inpatient hospital (patient status code 02), or

Nursing home that accepts payment under either the Medicare program and/or the Medicaid program (patient status codes 03, 61, or 64); AND

The length of stay (LOS) of the case is less than the average length of stay (ALS) for a given case-mix group (CMG).

IRFs must include the above discharge status codes in form locator 17 of the UB-04 claim or its electronic equivalent in the HIPAA-compliant 837 format. In cases when two or more patient discharge status codes apply, they must code the highest level of care known.

Omitting a code or submitting a claim with an incorrect code is a claim billing error and could result in a claim rejection or a cancellation. The bottom line: Apply the correct code in the correct place on the claim receive prompt and correct payment

Understand the Policy

The Medicare transfer policy consists of a per-diem payment amount, which is calculated by dividing the per-discharge CMG payment rate by the average LOS for the CMG.

A transfer is determined if the patient is discharged from one facility and admitted to another facility on the day of discharge. Under Medicare policy, it is not considered a transfer if this occurs on any other than the day of discharge from the first facility.

Medicare pays transfer cases a per-diem amount, and an additional half day payment for the first day. When the preceding IRF LOS is less than the average LOS for the CMG, that IRF claim should be paid a per-diem amount plus an additional half-day for the first day instead of the full IRF prospective payment system (PPS) rate. The full PPS payment represents an improper overpayment.

Here's an example of how an improper underpayment occurs. If a patient is discharged on April 3 from a facility and the claim is billed with a patient status code of 02 (transfer to an acute [short-term] hospital, but Medicare systems do not reflect another hospital claim with the admit date equal to the April 3 discharge date, the first claim was billed and reimbursed incorrectly. The problem is that the first facility claim (billed with a patient status code 02) was paid a per-diem amount when they should have received the full DRG amount.

Adopt Simple Solution

As IRF billers can see from the above, it's easy to solve a problem that's making RACs and CMS take notice. To avoid being in this situation, they should be sure they understand the basics of the Medicare transfer policy. Identifying the correct patient status code and applying it to the claim is the most important step.